Squabble Touched Off by China's Entry Into World Bank

By Hobart RowenBy Hobart RowenJune 28, 1980

A bitter squabble has been touched off by the recently announced entry of China into the World Bank, caused by a belief that bank money originally ticketed for India and other Asian and African nations will be diverted to the Chinese.

Munir P. Benjenk, World Bank vice president for external affairs, conceded in an interview yesterday that China's first loans -- a relatively small amount of money -- would likely be at the expense of other bank clients.

But he labeled "exaggerated" the fear of nations with the lowest per capita incomes that as much as $1 billion could be diverted from $12 billion available in subsidized loans by the International Development Association through mid-1983.

Loans by IDA, the bank's soft-loan affiliate, run for 50 years, and, except for a service charge, are virtually interest-free. Member nations are eligible for such loans when their per capita income is $575 or less.

What worries the Indians and other nations that until now have been getting the lion's share of the subsidized money is not only that they will have to share the pot with China -- but that China is planning to understate its real per capita income so as to get better treatment from the bank.

China has submitted to the bank an estimate tht its per capita income is only $230, in contrast to the $460 estimte the bank carries in its "Atlas" of world economic information for 1978.

The per capita figure is crucial: the nearer a country is to the top end of the $575 elegibility level, the more of its aid comes from the World Bank (at regular interest rates) and the less through the subsidized IDA window. Indian, for example, with a per capita income of only $180, gets all of its nearly $5 billion in aid from IDA.

The current total of $12 billion in the IDA drawer comes from the just-completed so-called "sixth replenishment" of funds by IDA's wealthy supporters, including the United States.

The "seventh replenishment" -- expected to be a much larger total to reflect both inflation and the substantial needs occasioned by China's entry into the bank -- won't be operative until July 1983. Negotiations for contributions won't even begin until next year.

The Chinese won't come up for major help until then, because it normally takes 18 months to process a loan application in any case.

"But they [the Chinese] were not told outright that they would not qualify for a loan during the sixth replenishment," Benjenk said. In effect, the unofficial guidance to the Chinese was that they could expect some help -- part from IDA and part from the World Bank at nonsubsidized rates.

Benjenk said that one of two World Bank missions to go to China later this year will be charged with making precise estimates of China's credit-worthiness and gross national product. China uses a "gross material concept," which appears to separate the services sector. The bank mission will be charged with translating the Chinese data into a per capita GNP number, and then making its own evaluation of Chinese GNP that will govern bank lending policy.

But the Chinese entry into the bank has created obvious discontent among the other aid receipients, especially India, which has been getting 40 percent of the IDA money. One official said, "There seems to be an unseeming rush to get China into the IDA."

Benjenk explained that it has been carefully explained to China in March, when Peking decided to join, that the current pot of IDA money had been contributed by the wealthy bank members with no expectation that China would be in the bank.

Privately, bank sources say that the most China would get from the bank and IDA before mid-1983 is $100 million to $200 million -- with everyone across the board giving up that much.

Other Third World nations label the Chinese estimate of $230 per capita for its GNP as "inconceivable" in view of other responsible estimates, and a Chinese claim of 5 and 7 percent real growth rates over the past decade.

The statistical "Agenda" published by the Overseas Development Council, a private research organization, lists China among lower-middle-income countries (as contrasted to low-income countries) with a GNP of $410 per capita in 1976, and an average per capita GNP growth rate of 5.3 percent for 1970-75.

A compendium of papers on the Chinese economy published by the Joint Economic Committee of Congress in 1978 estimated the 1976 per capita GNP at $340-$355, with assumed annual growth rates of 6.5 to 8.5 percent in the decade ahead.